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Only customers with smart meters can signup for demand response programs.

Smart meters — that is, those automated electric meters that measure energy consumption at homes and businesses — cost Texans between $2 and $3 every month. Although electric utilities long have advocated for them, the benefits never included much by the way of savings for home customers.

That may be changing, however, with the emergence of smart meter-enabled deals that allow Texans to receive extra payments for reducing their energy consumption.

At least two retail electric companies that operate in deregulated areas of the state offer the deals. Some municipally-owned utilities outside deregulation also sponsor such programs. The customer credits probably won’t be substantially large, but the deals themselves could benefit the state in other ways.

HOW DO THEY WORK?

Typically, an electric customer who signs up for such a program will receive notice via phone or text asking them to reduce their power usage. These alerts would come when energy demand statewide is increasing, which in turn leads to higher wholesale energy prices. Cutting your usage in response to such an alert — this is known as a “demand response” — benefits retail electric companies because it allows them to avoid purchasing hyper-expensive wholesale power. The company then shares some of that benefit by adding a credit to your home bill.

The Texas Coalition for Affordable Power supports such programs in principle because they can help the state’s grid operator meet its day-to-day operational challenges — but in such a way that benefits end-use customers. Demand response programs also benefit the environment by encouraging conservation. But customers whose health or welfare would suffer if they were to cut power should avoid these deals.

THE NUMBERS

We’ve examined demand response deals offered by Ambit and Reliant, both of which operate in deregulated areas of the state. The deals are completely voluntary — that is, the customer is under no obligation to reduce usage and can increase their usage at any time. They also work in conjunction with other electricity offers marketed by the companies. Under Ambit’s “Power Payback” demand response program, customers receive $1 per avoided kilowatt hour. Under Reliant’s “Degrees of Difference” programs, customers receive 60 cents or 80 cents per avoided kWh — depending on whether the customer also employs a programmable thermostat.

The companies calculate avoided kilowatt hours by comparing the customer’s usage during the demand response period to the customer’s average usage during the same time of day over the previous five weekdays. To calculate how much goes back to the customer, companies multiply the avoided kilowatt hours by the value of the offered credit.

That means that Ambit’s credit of $1 per avoided kWh would result in a $1 payment if you were to avoid using the equivalent of 10 100-watt light bulbs for one hour. Again, this reduction must come during the demand response period, as identified by the company, and would be in comparison to the five previous weekdays.

We identified one potential interval, back on January 6th, when wholesale prices spiked to levels that were 80 to 100 times higher than typical prices. We found that if a homeowner on an Ambit-type program had gone to the breaker box and shut off all power for three hours during that event, he or she might have received a $30 credit.

As for Reliant’s “Degrees of Difference” products — under the 60 cent-per-avoided kWh deal — a homeowner who cut off all power, as described above, could have received an $18 credit. Reliant’s 80 cent-per-avoided kWh deal works in conjunction with a Nest programmable thermostat that automatically adjusts itself (although the customer can reset the thermostat at any time).

A couple of other points warrant mentioning.

By necessity, our calculations are imprecise and depend upon a number of somewhat arbitrary assumptions regarding the size of the home, the average energy used during the five previous weekdays, and wholesale energy costs. However, in each case the company could be making out better than you. For instance, the scenario described above that leads to the $18 credit for the customer could also allow the company to save $50 in avoided costs, according to our calculations.

Also keep in mind how the company calculates avoided usage. If your average power consumption happens to be relatively low during the five previous weekdays, it may be difficult to earn much of a credit unless you radically reduce consumption during the demand response event. If you manage only to match your average power consumption from the five previous days, your credit will be zero.

Our take: demand response programs can take pressure off the power grid during hot summer days — but in such a way that potentially benefits consumers. Such programs may be especially appealing to those consumers who have the ability and the temperament to adjust thermostats quickly at the urging of their power company. However, if you’re already doing your part to reduce consumption on a daily basis, it may be difficult to earn a bill credit without taking dramatic action.

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.

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R.A. Dyer is a policy analyst for the Texas Coalition for Affordable Power, an organization of more than 160 cities and political subdivisions that purchases power in the deregulated market. Dyer also edits TCAP's online newsletter, the Recharge Ratepayer Report. Dyer has spent more than a decade monitoring consumer issues in Texas and is the author of numerous in-depth reports on energy, including The Story of ERCOT, released in 2011, and Deregulated Electricity in Texas, released in 2012.

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